Today's Environment for Business Ethics and Related Social Issues

Chapter 2

Explain the concepts of business ethics and social responsibility

Describe the factors that influence business ethics.

List the stages in the development of ethical standards and discuss how organizations shape ethical behavior.

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Learning Goals

Describe how businesses’ social responsibility is measured and summarize the responsibilities of business to the general public, customers, and employees.

Explain why investors and the financial community are concerned with business ethics and social responsibility.

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• Ethics may be defined as the set of moral principles that distinguish what is right from what is wrong.

• Ethics has a twofold objective: It evaluates human practices by calling upon moral standards; also it may give prescriptive advice on how to act morally in a given situation.

• Ethics, therefore, aims to study both moral and immoral behavior in order to make well-founded judgments and to arrive at adequate recommendations.

• Sometimes ethics is used synonymously with morality. An action, which is morally right, is also called an ethical one. Codes of morality are called ethical codes. Business ethics can also be defined as business morality.

Business Ethics

• The study of proper business policies and practices regarding potentially controversial issues, such as corporate governance, insider trading, bribery, discrimination and corporate social responsibility. Business ethics are often guided by law, while other times provide a basic framework that businesses may choose to follow in order to gain public acceptance. (Investopedia).

• Business ethics are implemented in order to ensure that a certain required level of trust exists between consumers and various forms of market participants with businesses.

• For example, a portfolio manager must give the same consideration to the portfolios of family members and small individual investors. Such practices ensure that the public is treated fairly.

Business Ethics

• In Islam, ethics governs all aspects of life. Islamic teachings strongly stress the observance of ethical and moral code in human behaviour. Moral principles and codes of ethics are repeatedly stressed throughout the Holy Qur’an. Besides, there are numerous teachings of the Prophet(sws) which cover the area of moral and ethical values and principles. Says the Holy Qur’an:

• You are the best nation that has been raised up for mankind; You enjoin right conduct, forbid evil and believe in Allah. (3:110)

• The Prophet (sws) also says:• I have been sent for the purpose of perfecting good morals. (Ibn Hambal,

No: 8595)

AN ISLAMIC APPROACH TO BUSINESS ETHICS

• Islam demands a certain type of behaviour from the economic agents – the consumers and the producers. There are a number of rules of ethical discipline in Islamic commercial transactions without which business contract would be regarded as lacking perfection in the light of the code of good manners, decency and ethical excellence. Some of these tenets are as follows:

• Islam places great emphasis on the code of lawful and unlawful in business transactions. Many Qur’anic verses disapprove the wrongful taking of the property. Says the Holy Qur’an:

• Do not devour one another’s property wrongfully, nor throw it before the judges in order to devour a portion of other’s property sinfully and knowingly. (2:188)

• Do not devour another’s property wrongfully – unless it be by trade based on mutual consent. (4:29)

ISLAMIC TENETS CONCERNING BUSINESS TRANSACTIONS

• The Prophet (sws)endorsed the importance of legitimate ways of earning in the following words:

• Asked ‘what form of gain is the best? [the Prophet] said, ‘A man’s work with his hands, and every legitimate sale’. (Ahmad, No: 1576)

• From the above it is clear that a Muslim trader must be determined to earn only through legitimate means.

• Things legitimate and illegitimate are clearly defined in Islam and, in between them, are doubtful things, which should be avoided. A tradition of the Prophet (sws) states: A time will come upon the people when one will not care as to how he gets his money whether legally or illegally. (Bukhari, No: 1941). The Prophet (sws) is also reported to have said; Allah and His Messenger made illegal the trade of alcoholic liquors, dead animals, pigs and idols. (Bukhari, No: 2082)

• The Prophet (sws) also said; If Allah makes something unlawful, he makes its price also unlawful. (Ahmad, No: 2546)

ISLAMIC TENETS CONCERNING BUSINESS TRANSACTIONS

 The Prophet (sws) has also exhorted the believers to strictly adhere to truthfulness in business transactions. He says: 

• The seller and the buyer have the right to keep or return the goods as long as they have not parted or till they part; and if both the parties spoke the truth and described the defects and qualities [of the goods], then they would be blessed in their transaction, and if they told lies or hid something, then the blessings of their transaction would be lost. (Bukhari, No: 1937) 

• The tradition implies that Allah blesses business dealings if both the buyer and the seller are true to each other. Telling lies and hiding facts will result in the loss of divine blessing. A tradition reads.

• The Holy Prophet said: ‘Traders are wicked people’. The Companions asked: ‘O Messenger, has Allah not permitted business?’ The Messenger replied: ‘Of course He has declared trading lawful. But they (i.e. the traders) will swear by Allah and do evil, they will not speak but tell lies’. (Ahmad, No: 14982)

ISLAMIC TENETS CONCERNING BUSINESS TRANSACTIONS

Business Ethics � The standards of conduct and moral values

governing actions and decisions in the work environment.� Social responsibility� Balance between what’s right and what’s profitable� Often no clear-cut choices� Often shaped by the organization’s ethical climate

Sarbanes-Oxley Act � A 2002 law that added oversight for the nation’s

major companies and a special oversight board to regulate public accounting firms that audit the financial records of these corporations.

Concern for Ethical and Societal Issues

The Contemporary Ethical Environment

� Business ethics are now in the spotlight as never before. Companies realize that they have to work harder to develop trust in general public.

� A Survey report, Society now has greater expectations of business than it did five years ago, 95% CEOs replied.

� It benefit all Consumers, the Environment, and the Companies themselves.

� Vast majority of businesses are ethical.

� Engage in traditional corporate generosity, which involves giving to worthy causes.

� Anticipate and manage risks.� Identify opportunities to create value by doing the

right thing.

� See how Wal-Mart highlights corporate responsibility on its website.

Business Approach to Ethics and Social Responsibility

� Individuals can make the difference in ethical expectations and behavior.� Putting own interest ahead of the organization� Lying to employee� Misrepresenting hours� Safety violations� Internet abuse

� Technology is expanding unethical behavior.

Individuals Make a Difference

Development of Individual Ethics

On-the-Job Ethical Dilemmas

Situation in which a

business decision may

be influenced for

personal gain.

Employee’s

disclosure of illegal,

immoral, or

unethical practices

in the organization.

Telling the truth and

adhering to deeply felt

ethical principles in

business decisions.

Businesspeople

expect employees to

be loyal and truthful,

but ethical conflicts

may arise.

How Organizations Shape Ethical Conduct

Ethical Awareness

Code of Conduct: Formal

statement that defines how

the organization expects

and requires employees to

resolve ethical questions.

Ethical Education

Codes of conduct cannot

detail a solution for every

ethical situation, so

corporations provide training

in ethical reasoning.

Ethical Action

Helping employees

recognize and reason

through ethical problems

and turning them into ethical

actions.

TI Ethics Quick Test

Ethical Leadership

Executives must demonstrate

ethical behavior in their

actions.

�use clear, explicit language rather

than euphemisms for corrupt

behavior

�encourage behavior that generates

and fosters ethical values

�practice moral absolutism, insisting

on doing right even if it proves

financially costly

Acting Responsibly to Satisfy Society

Social Responsibility

�Management’s consideration of profit, consumer

satisfaction, and societal well-being of equal value in

evaluating the firm’s performance.

�Contributions to the overall economy, job

opportunities, and charitable contributions and

service.

�Organizations measure through social audits.

Areas of Responsibility

Responsibilities to the General Public� Public Health Issues. What to do about inherently

dangerous products such as alcohol, tobacco, vaccines, and steroids.

� Protecting the Environment. Using resources efficiently, minimizing pollution.

� Green marketing� Sustainability

� Developing the Quality of the Workforce. Enhancing quality of the overall workforce through education and diversity initiatives.

� Corporate Philanthropy. Cash contributions, donations of equipment and products, and supporting the volunteer efforts of company employees.

Responsibilities to Customers

CONSUMERISM� The Right to Be Safe. Safe operation of products,

avoiding product liability.

� The Right to Be Informed. Avoiding false or misleading advertising and providing effective customer service.

� The Right to Choose. Ability of consumers to choose the products and services they want.

� The Right to Be Heard. Ability of consumers to express legitimate complaints to the appropriate parties.

Responsibilities to Employees� Workplace Safety. Monitored by Occupational Safety and

Health Administration.� Quality-of-Life Issues. Balancing work and family through

flexible work schedules, subsidized child care, and regulation such as the Family and Medical Leave Act of 1993.

� Ensuring Equal Opportunity on the Job. Providing equal opportunities to all employees without discrimination; many aspects regulated by the Equal Employment Opportunity Commission.

� Age Discrimination. Age Discrimination in Employment Act of 1968 protects workers age 40 or older.

� Sexual Harassment and Sexism. Avoiding unwelcome actions of a sexual nature; equal pay for equal work without regard to gender.

Responsibilities to Investors

� Obligation to make profits for shareholders.

� Expectation of ethical and moral behavior.

� Protection of investors by the Securities and Exchange Commission and state regulations.